Monopoly led to 27 percent rate increase

The Michigan Public Service Commission is attempting to influence Michigan policy by issuing reports on energy-related issues.

Its most recent report focuses on Michigan's use of competition and consumer choice in electricity services.

Ted Bolema, a member of the Mackinac Center for Public Policy's Board of Scholars, just published a policy brief critiquing this most recent report from the MPSC. It will be submitted as a formal comment to the MPSC.

Bolema shows that the MPSC report errs when it fails to recognize that the increasing electricity prices in Michigan are due to a 2008 law that guaranteed a 90 percent market share of electricity sales to the state's two largest utilities, Consumers Energy and DTE Energy.

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From 2008 to 2012, the report shows, Michigan's electricity rates increased 27 percent, compared to an increase of just 8 percent in neighboring states and a decline of 1 percent nationally. Unsurprising to anyone familiar with basic economic theory, rates rose when Michigan chose to provide electricity through a monopoly.

Bolema concludes the report: "Michigan should once again embrace opening its electricity market to more entrants to see if they can perform better than the incumbent firms, which will drive down prices for electricity consumers. Michigan allowed such competition to start to emerge during its brief era of [consumer choice], and the early results were promising. The initial results from a more tightly regulated and protectionist experiment have been by contrast disappointing."

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